In Thursday’s trading, Jyothy Laboratories stock plunged 11.5 per cent stake in detergents and household products maker Henkel India. Price of the this transaction appears to be quite reasonable, though investor worries centre around whether Jyothy Labs will now embroil itself in an aggressive bidding war for a majority control in Henkel India, draining it of its cash resources.
Given the paucity of acquisition candidates in the FMCG space, any majority stake sale by Henkel India is likely to attract much larger suitors, who may have deep pockets to fund their bids. Potential bidders may also have to shell out fairly stiff valuations going by previous FMCG deals.
On the face of it, Jyothy Labs appears a good enough suitor for Henkel India. Henkel India’s brands are established mainly in detergents, soaps and household products and may neatly complement Jyothy Labs’ portfolio spanning fabric and home care.
The price that Jyothy Labs has now shelled out for the purchase of the 14.9 per cent stake from erstwhile promoter Tamilnadu Petroproducts, too doesn’t seem exorbitant, as the price of Rs 35 a share is at a steep discount to Henkel India’s prevailing market price Rs 45 on Wednesday, when the deal was inked. However, if Jyothy Labs’ intention is to gain control of Henkel India’s brand portfolio, it will have to take its equity stake in the company to much beyond its current 14.9 per cent.
Given the escalating competition and advertising spends in the detergents space, the company may need all the cash it can spare to defend market share in this segment. Valuation multiples could also escalate much above the current levels, if two or three larger bidders enter the fray.
Given that quite a few of Henkel India’s detergent and other brands are from the parent’s global portfolio, an outright sale of these brands to an Indian suitor is unlikely too.
Therefore, any new Indian company in control of Henkel India may be able to acquire ownership only of home-grown brands such as Margo, Neem and Brisk.
Ownership of Henkel India’s detergent and dish-wash brands Henko, Mr.White and Pril are likely to remain with the parent, with marketing rights in India if at all this is done made available through a fee-based licensing arrangement.
Source: Business Line